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Master of Business Administration- MBA Semester 3 MB0051 Legal aspects of Business -4 Credits (Book ID: B1725) Q1.

It is important for any person to know law as ignorance of law is no excuse. Modern Indian law has been derived from some sources. Discuss the primary and secondary sources of Indian law. (primary sources- 5 marks, secondary sources- 5 marks) 10 marks Answer. The main sources of modern Indian Law, as administered by Indian courts, may be divided into broad categories: (i) Primary sources and, (ii) Secondary sources. The primary sources of Indian law are: (a) Customary Law: Customs have played an important role in making the law and therefore are also known as customary law. Customary Law, in the words of Keeton, may be defined as those rules of human action, established by usage and regarded as legally binding by those to whom the rules are applicable, which are adopted by the courts and applied as sources of law because they are generally followed by the political society as a whole or by some part of it. (b) Judicial precedents, (stare decisis) : Judicial precedents are another important source of law. It is based on the principle that a rule of law which has been settled by a series of decisions generally should be binding on the court and should be followed in similar cases. These rules of law are known as judicial precedents. (c) Statute An Important Source of Law: The statutes or the statutory law or the legislation is the main source of law. This law is created by legislation such as Parliament. In India, the Constitution empowers the Parliament and state legislatures to promulgate law for the guidance or conduct of persons to whom the statute is, expressly or by implication, made applicable. (d) Personal law: Many times, a point of issue between the parties to a dispute is not covered by any statute or custom. In such cases the courts are required to apply the personal law of the parties. Thus in certain matters, we follow the personal laws of Hindus, Mohammedan and Christians. The secondary sources of Indian law are: The secondary sources of Indian Law are English Law and justice, Equity and Good Conscience.

a) English Law: Nowadays, English law is not very important source of Indian law. The English law, in its application to India, has to conform to the peculiar circumstances and conditions prevailing in this country. Even though the bulk of our law is based on and follows the English law, yet in its application our courts have to be selective. b) Justice, Equity and Good Conscience: In India we do not have, no did we ever had separate courts (as in England) administering equity. But the equitable principles of law, I.e., justice, equity and good conscience, are the guiding force behind most of the statutes in our country and the decisions of the courts. The frequent use of terms such as good faith, public policy, in statutes and by the judges in their judgments is based on principles of equity. Q2. We all enter into many contracts in a day knowingly or unknowingly. Explain the definition of a valid contract. How are contracts classified? ( definition - 5 marks, classification 5 marks) 10 marks Answer. Valid Contract: A contract that complies with all the essentials of a contract and is binding and enforceable on all parties. It determines the circumstances in which promise made by the parties to a contract shall be legally binding on them. All of us enter into a number of contracts everyday knowingly or unknowingly. Each contract creates some right and duties upon the contracting parties. Indian contract deals with the enforcement of these rights and duties upon the parties in India. A valid contract normally contains the following five basic elements. (i) Intention to create legal relations-It is generally presumed that in a commercial transaction, the contracting parties must have the intention to create a legally binding contract. (ii) Offer-An offer is an expression of readiness to do something which, if followed by the unconditional acceptance of another person, results in a contract. For example, if a company tells you that it will sell you 100 boxes of red wine at the price of $100,000, that company is making you an offer. (iii) Acceptance-There is no contract unless and until the offer is accepted by the person to whom the offer is addressed (sometimes called "the offeree"). (iv) Consideration (benefit given to the other party)- An contract law, consideration means a detriment to the person who made the promise or a benefit conferred on the other party, both of which are measurable in economic terms. Money, goods and services are the most common examples of consideration. (v) Capacity (the authority or ability to make contracts)-Persons under the age of 18 (called "minors") and lunatics (mentally disordered or intoxicated persons) do not have the capacity to enter into contracts. Any contracts that are made by persons who are lacking in legal capacity are voidable: that is, the party who needs the protection can seek to avoid the contractual liability.

Classifications of contracts: A contract is valid when all elements are present. However, if one or more of the elements is absent, the contract may be classed as void, voidable, unenforceable or illegal. Thus contracts may be one of the following. Valida contract is valid when all the essential elements are present. Voida void contract has no legal effect and does not create legal rights and obligations. Strictly speaking, the term void contract is a contradiction in termsif a contract is void then no contract has been made. Voidablea contract is voidable where, although valid at inception, one of the parties to the contract has the right to affirm or avoid the contract at that partys option. Unenforceablethis is a contract which in substance is valid, but because of some technical defect, one or both parties cannot enforce the contract in court. One example of this would be a verbal contract which under statute is required to be evidenced in writing. Illegalthe courts will not assist people to make contracts to break the law. So if the purpose of the contract is of an illegal nature, the courts will not assist either of the parties to enforce the contract. Again think about the example of Nifty and Swifty in our introduction. There are other contracts that, although not illegal by law, will not be enforced by the courts becausthe objects of the contract are against public policy at common law. Q3. The parties to bailment have certain rights and duties. Discuss the duties of both parties i.e. the bailor and bailee. ( duties of bailor- 5 marks, duties of bailee- 5 marks) 10 marks Answer. He person delivering the goods is called the bailor. It is the bailor's duty to disclose to the bailee all faults in the goods bailed. The person to whom the goods are delivered is called the bailee. The bailee's duty is to take care of the goods bailed to him. Duties of bailor (i) the bailor is bound to disclose to the bailee all faults in the goods bailed of which the bailor is aware and which materially interfere with the use of them or which expose the bailee to extraordinary risks. If he fails to do so, he is liable to the bailee in damages. (ii) Where goods are bailed by way of hire, the bailor is liable to make good loss caused to the bailee by such defects, whether he was aware of their existence or not. Notice that there is a difference in the degree of responsibility of the bailor, according as bailment is gratuitous or non- gratuitous. In the first case the bailor is liable only for known defects; in the latter case he is liable also for unknown defects. Thus if A lends his horse to B for riding and the horse is vicious to the knowledge of A, A is bound to disclose the fact to B. Similarly, if a carriage is hired by A from B and the carriage has a defect which makes it dangerous to ride, B is liable to A for damage caused to A by such defect, and this whether B was aware of defect or not. In other words where an article is hired out for use there is an implied warranty that it is fit for such use. If there is a breach of this warranty, there is no obligation to pay the hire.

Duties of bailee Duty to take care : the first and foremost duty of a bailee is to take care of the goods bailed with him. The extent of his duty is defined by sec. 151. Under the sec. a bailee, in absence of a contract to the contrary, is bound to take as much care of goods bailed, as a man of ordinary prudence would do of his own goods, of equal quality, bulk and value. In other words, he is bound to take the ordinary prudent mans care of the goods bailed and if loss occurs in spite of such care the bailee is not liable for the loss . Thus if an article bailed is kept unlocked by the bailee, while the locks of similar articles of his own, the bailee will be liable for the loss. Similarly if a servant of the bailee commits the theft of the article bailed and the bailee has been negligent in the selection of the servant, the bailee will be liable. It would be otherwise, if there was no negligence in the selection of servant. Want of skill usually associated with a particular class of work, would be evidence of negligence. Notice that where goods are bailed with another, the latter has no right to place the goods in the custody of a third person without the bailors authority. If he does so he commits a breach of his contract with the bailor and is liable for all damages caused to the goods while in custody of third person. In a recent English case a railway company had received certain baggage from A in their cloak room and had issued tickets in respect thereof to A. Subsequently, through the negligence of their clerk, the baggage is allowed to be removed by B who had produced no ticket and who had given no satisfactory proof of loss of the tickets. One of the terms of the contract provided that the company will not be liable for miss delivery or for articles exceeding $5 in value if their value was not previously declared. A had not made such declarations. Held the company was liable, because it had broken the fundamental term of the contract viz. that the company would deliver the articles to the person producing the ticket or in case of loss of the tickets, to the person satisfactory proving the ownership of the articles; that such being the case, the whole contract was terminated and therefore the rule as regards declaration of value ceased to been operative. Notice that the sec. makes no difference between a gratuitous and a non-gratuitous bailment with regard to this duty to take care. Q4. A contract comprises of reciprocal promises. In a contract of sale who is an unpaid seller? Discuss the remedies for breach of contract under Sale of Goods Act, 1930. ( unpaid seller- 2 marks, breach of contract- 8 marks) 10 marks Answer. A contract is a comprises of a reciprocal promises. In contract of sale, if seller is under an obligation to deliver goods, buyer has to pay for it. In case buyer fails or refuse to pay, the seller as an unpaid seller, shall have certain rights.

Unpaid seller:- an unpaid seller of goods is a person who has not been paid the whole of the price or to whom the whole of the price has not been tendered: The seller of good is deemed to be an unpaid seller if: a) The whole of the price has not been paid or tendered. b) When a bill of exchange or other negotiable instrument has been received as conditional payment and the condition on which it was received has not been fulfilled by reason of the dishonor of the instrument or otherwise.

The term seller includes nay person who is in the position of seller, eg. An agent of the seller. 1. Introduction: The right and duties of buyer & seller have been determined under sales of goods act if any party to the contract of sales of goods act commits breach of contract, the other party has right against that party who commits the breach. 2. Meaning of breach of contract: Breach means violation of law. The breach of contract means to break the contract or not to act upon the terms and conditions of the contract. 3. Remedies of buyer: Buyer has the following remedies in case of breach of contract. (I) Suit for damages for non delivery: Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non delivery. (II) Suit for specific performance:

According to Sec. 58

Where there is breach of contract for sale of specific goods, the buyer may file a suit for specific performance. This remedy is granted only when damages would not be adequate remedy. Case law PLD 1998 Kar 1 It was held that court is empowered to pass a decree unconditional or upon such terms and conditions as to damages while passing order on the application of the plaintiff which can be made at any time before the decree. (III) Suit for damages for warranty: According to Sec 59. Where there is breach of warranty by the seller, the buyer is entitled to sue for damages if he has paid the price to the seller. But if the buyer has not yet paid the price he may ask the seller for reasonable deduction in price. Case law P.L.D 1973 Kar. 361 Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat any breach of a condition on the part of the seller as a breach of a of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods but he may: (a) Set up against the seller the breach of warranty in diminution or extinction of the price, or (b) Sue the seller for breach warranty. (IV) Suit for cancellation and damages for breach of condition:

Where there is breach of condition by the seller, the buyer can avoid the contract and claim damages. (V) Suit for recovery of price with interest: According to sec 61. If the buyer has already paid the price to the seller and the seller does not deliver the goods to the buyer he can sue the seller for the refund of the price and also interest at reasonable rate. Case law 1980 CLC 1734 It was held where the price is not determined in accordance with the foregoing provisions; the buyer shall pay the seller a reasonable price. What is reasonable price. What is reasonable price is question of fact dependent on the circumstance of each case.

Q5. The Companies Act, 1956 deals with the formation and transaction of business of a company. Discuss the features of a company. Also explain the process of formation of a company. ( features- 3 marks, process of formation- 7 marks) 10 marks Answer. Features of company: 1. Registration: A company is to be compulsorily registered under the Companies Act. 2. Artificial Person: A company is an artificial person. Company is an artificial person, invisible, intangible and existing only in the eyes of law. It is created under the law, not itself a human being. It is called a person as it is clothed with certain rights and obligations. 3. Separate Legal Entity: A company can enter into contracts with its directors, its shareholders and outsiders. It functions through its board of directors. A company is a distinct person, with its own independent identity. 4. Common Seal: Common seal is the signature of the company. As company is an artificial person, it is not bestowed with the body of a human being. The company has a separate legal existence through its common seal. The use of common seal is provided in the articles of association of the company. 5. Separate Property: A company can open a bank account in its name. It can exercise the entire powers incidental to the attainment of the objects of the company. A company can enter into contracts, through its board of directors. Shareholders are not, in the eyes of the law, part owners of the company. 6. Company to Sue and be Sued: A company can sue and be sued in its name. The companys right to sue arises as and when some loss is caused to the company. In case of breach of performance by any third party, the company can sue the third party in its name. The essential steps for the formation of a COMPANY Before a company can be formed the following steps must be taken: 1. The Memo and the Article must be prepared. These two documents must be filed when the application is made for the registration and incorporation of the company. The Companies Act lays down rules regarding the preparation of the memorandum. Schedule I to the Act of 1956 contains four model forms for use indifferent cases. 2 .If it is proposed to have a paid up capital of more than Rs 3 crores, sanction of the central Government must be obtained under the capital issue (Control) Act,1956.

3. If the company to be formed intends to participate in an industry which is included in the scheduled annexed to the industries (Development and Regulation) Act, 1951, a license must be obtained under the Act. 4.The company must be registered in accordance with the provision of the companies Act, 1956 and a certificate of incorporation must be obtained. 5. The prospectus or the statement in lieu of prospectus must be issued and registered with the registrar. 6. The minimum subscription must be raised and therefore the allotment of shares must be made. 7. The certificate for the commencement of business must be obtained from the Registrar

Q6. With Information Technology Act, 2000, India has a set of cyber laws to provide legal infrastructure for e commerce. Discuss the objectives and limitations of this Act. ( objectives- 3 marks, limitations- 7 marks) 10 marks Answer. Electronic commerce (e-commerce) in India is growing at a fast pace. Along with this growth, e-commerce laws and regulations in India have also grown. The most common one are legal requirements to start an e-commerce website in India and legal formalities required for starting e-commerce business in India. As more and more business entities and entrepreneurs are becoming aware of the benefits of online presence and brand promotion and protection in India, e-commerce has become a popular method of doing business.

Objective of Information Technology Act, 2000 The following are its main objectives and scope:1. It is objective of I.T. Act 2000 to give legal recognition to any transaction which is done by electronic way or use of internet. 2. To give legal recognition to digital signature for accepting any agreement via computer. 3. To provide facility of filling document online relating to school admission or registration in employment exchange. 4. According to I.T. Act 2000, any company can store their data in electronic storage. 5. To stop computer crime and protect privacy of internet users. 6. To give legal recognition for keeping books of accounts by bankers and other companies in electronic form. 7. To make more power to IPO, RBI and Indian Evidence act for restricting electronic crime. Shortcoming of I.T. Act 2000 We have no dedicated e-commerce laws in India. However, the information technology act 2000 (IT Act 2000), which is the sole cyber law of India, is regulating the e-commerce business and transactions in India. Internet intermediaries liability in India under the IT Act 2000 is very stringent.

For instance, the e-commerce players can be held liable for online infringement of copyright in India of the copyright owners. Cyber law due diligence in India is one aspect that all e-commerce site owners must frequently engage in. The present laws of India are stringent in nature and subsequently claiming ignorance of such laws would not make much difference. Presently, very few lawyers in India familiar with technological aspects in general and e-commerce laws in particular. Lawyers in India need to upgrade their skills and knowledge in the upcoming fields like cyber law, e-commerce, etc. For e-commerce entrepreneurs and business houses, Perry4Law and Perry4Law Techno Legal Base (PTLB) strongly recommend that before opening an e-commerce site or business, the owner of the same must consult a good techno legal law firm that can advice him upon all the possible and applicable aspect of e-commerce laws in India. A failure to do proper cyber due diligence before opening an e-commerce portal in India may be counter productive and attract fines, penalties and criminal sanctions. It is better if a proper legal due diligence has been done in this regard before opening the e-commerce business in India. Some main shortcoming of IT Act, 2000 as follows: 1. Infringement of copyright has not been included in this law. 2. No protection for domain names. 3. The act is not applicable on the power of attorney, trusts and will. 4. Act is silent on taxation. 5. No, provision of payment of stamp duty on electronic documents.